W.D. Gann wrote the following in the “Method of Forecasting the Stock Market”:
“it is always safe to buy or sell with a stop 3 points above or below the two weeks reverse move. If the market is going higher, it should continue up the third week, or down, as the case may be. The rules apply in a bear market as in a bull market.”
What does this mean? W.D. Gann basically stated that a trend will continue after a reversal of two weeks (or days depending on the time-frame) on the third week. If it doesn’t, the trend is basically violated.
A trend is established when three consecutive days of a certain bullish or bearish action takes place. You may have some “indecisive days” between the consecutive days which is ok. If a reversal occurs on a major trend, the trend will continue on the three day after the two reversal days. If it doesn’t then the trend is violated.
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